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GM performance stands out

Quick Pointers:

* Volumes increased by 16.5%.

* Despite being an e-com centric quarter, GM improves 130bps on sequential basis to 47.1%.

SII IN reported better than expected performance with revenue/EBITDA beat of 4%/16% respectively. GM expanded 130bps on sequential basis to 47.1% led by benign RM prices and rising backward integration benefit arising from expansion at Jaipur. Further, since the last 2 quarters, volume growth is at par with value growth indicating pricing environment has now stabilized. Despite a strong performance, we broadly retain our estimates as we are factoring 2HFY26E ask of Rs10bn in revenue and 46.6%/15.0% in GM/EBITDA margin respectively. We expect sales CAGR of 17% over the next 3 years with an EBITDA margin of 14.7%/15.6%/16.3% in FY26E/FY27E/FY28E. Retain BUY on the stock with a TP of Rs2,570 (45x Sep-27E EPS; no change in target multiple).

Revenue increased 16.5% YoY: Top-line increased 16.5% YoY to Rs5,336mn (PLe Rs5,127mn) primarily led by higher share within e-com channel. Volumes were up ~16.5% YoY. Luggage/backpacks contributed ~85%/~15% to the top-line.

GM improves by 322bps YoY to 47.1%: Gross profit increased 25.1% YoY to Rs2,511mn (PLe Rs2,343mn) with a margin of 47.1% (PLe 45.7%). GM was predominantly aided by favorable RM prices and benefits accruing from backward integration at Jaipur.

EBITDA/PAT margin stands at 13.9%/8.8%: EBITDA increased 54.6% YoY to Rs740mn (PLe Rs641mn) with a margin of 13.9% (PLe 12.5%). PAT increased 58.3% YoY to Rs469mn (PLe Rs405mn) with a margin of 8.8% (PLe 7.9%) as compared to a margin of 6.5% in 2QFY25.

Key highlights from our interaction with the management: 1) HL:SL mix for 2QFY26 stood at 75%:25%. 2) E-com share in the channel mix rose to 50% in 2QFY26. 3) A&P expense stood at ~8.0% of revenue in 2QFY26 driven by higher spends towards marketing on e-com channel and for premium brands (Urban Jungle & Safari Select). 4) Within the channel mix, share of GT and MT remained in the band of 15-20%. Share of GT/MT is towards the lower/higher end of the band respectively. 5) Total EBO stood at 160+ during the quarter. 6) Capacity utilization at Jaipur stood at 70% for 2QFY26. 7) Urban Jungle and Safari Select contributed ~5% to the top-line in 2QFY26. 8) Employee expenses grew 17.5% YoY to Rs355mn, driven by salary revisions and ESOP expenses. 9) There are plans to commence in-house manufacturing of premium brands (Urban Jungle & Safari Select). 10) After Sep-25, there has been material inventory liquidation and realization of receivables. Consequently, current cash on books stands at Rs3bn+ (~Rs2bn as of 1HFY26).

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